Market segmentation refers to the process of subdividing large customer groups into ‘segments’ that share the same characteristics. Doing this can improve your advertising efforts and actually increase sales.
By dividing your customers into groups, you can send personalised messages that are more likely to get a response.
Although your products or services might appeal to a large group of people, it doesn’t make sense to market to literally everyone. The truth is, no one business can solve everyone’s problem or appeal to every single person. Most businesses focus on what is called a target market — in other words, the people most likely to buy from them.
As the trend towards product personalisation grows, market segmentation becomes even more valuable. This is why streaming services such as Netflix and Spotify are so popular. Both recommend music, movies and TV shows based on the users’ individual tastes and preferences. Consumers reward this level of customisation with their dollars.
4 ways to group your customers
People can be grouped according to many values or criteria. The four main categories often used in market segmentation are:
By grouping customers with similar characteristics together, you can personalise the messages you send to each group.
People in different places often have widely different needs, shopping patterns and languages. You could segment by country, state and/or suburb. You can then send emails or place Facebook ads shown only to those who live in a particular area (yes, Facebook knows where you live).
Differences in gender, age, life stage, income, and education all influence buyer behaviours. By dividing your customers up into groups that share the same demographics, you can actually tailor your offers to align with their interests.
People have different values and belief systems, which often influence their purchasing decisions. Values are often influenced by but not limited to geography, lifestyle, age and religious beliefs. You can read more about this type of segmentation in this post.
Not every consumer buys the same way. Some people research their options carefully for months, while others are impulse buyers who make on-the-spot decisions.
Some people prefer a traditional brick-and-mortar store where they can try on or handle the product first before purchasing. Others prefer the convenience of shopping online.
Knowing how well your marketing will match the target group’s behaviour will have a big impact on your success.
Considerations when using market segmentation
In order for segmentation to be useful, the segment you’ve identified must have measurable characteristics. Some things to consider are:
The attributes of each market segment must be well-defined. It’s important to differentiate one segment from another to avoid any overlap in marketing activities which might result in doubling up on efforts (and cost). For example, including a customer in both urban and rural segments will cause confusion and inefficiencies.
The segment must be reachable. Business owners need to understand the media habits of the target customer in order to choose a marketing strategy that will reach them. Different segments might respond better to outdoor advertising, social media campaigns, television infomercials or any number of other approaches.
Size and applicability
It’s important to know the size of the market segment to decide whether marketing efforts are worth it and will deliver enough sales. You should also consider whether this group is likely to buy the product and if they have the financial resources to make the purchase.
This is whether the business can actually satisfy the needs of the market segment. A segment may look like an attractive target, but if your business lacks the capacity to fulfill what the segment demands, it’s best to choose another group to focus on.
If you’re not sure about the answers, don’t be afraid to ask your customers the questions that relate to the segmentation categories. They can help you validate (or change) your assumptions. You can find this information through surveys, focus groups and polls.
The goal: personalised promotions
When you are working with a limited marketing budget, it’s important that you get the most for your marketing dollars.
If you haven’t already, you should start collecting emails from people who agree to be contacted. It’s quick and easy to add newsletter signup forms to your website and business Facebook page with tools like GoDaddy Email Marketing.
Focused message, better results
As we know, personalisation can lead to big wins in email marketing. Emails with the recipient’s name in the subject line are 26% more likely to be opened.
Customer Relationship Management (CRM) tools can provide useful information you can use to identify your major segments. As your email list grows, you’ll want to start putting each new signup into one of them. You’re not going to message a 75-year-old woman in the same way that you would market to an 18-year-old male.
You can segment your lists however suits your business, either by age, gender, physical location or whatever you want. This level of organisation will help you tailor your messages and drive more sales.
Divide and conquer
Business growth is all about personalisation these days. Market segmentation allows a business to reach out to consumers with messages tailored to their specific needs and wants. While dividing customers up into subgroups may be a manual process initially, it will lead to better marketing decisions and ultimately more sales.